Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Competition, Antitrust & Foreign Investment, 27 January 2011
FIRST MERGER CHALLENGE SINCE 2005 PROVIDES KEY MERGER PLANNING LESSONS
Yesterday, the Commissioner of Competition challenged the completed acquisition by CCS Corporation (CCS) of Complete Environmental Inc. (Complete). The Competition Bureau received a strong mandate from Parliament to review mergers closely and comprehensively when the Competition Act merger provisions were amended in 2009 (see our March 2009 Blakes Bulletin: Significant Amendments to Canada's Competition Act and Investment Canada Act Now in Force). This case further reflects the Bureau's commitment to carry out this new mandate.
In February 2010, Complete had obtained regulatory approval to convert the Babkirk landfill, located 130 km north of Fort St. John, B.C., into a "secure landfill", i.e., a landfill designed, constructed and operated to keep hazardous waste confined for an indefinite period of time. CCS currently operates the only other two operational secure landfills in B.C.
Rather than entering the market, however, the Babkirk facility was sold to CCS pursuant to an agreement dated December 30, 2010. Thereafter, the Competition Bureau investigated the acquisition. The acquisition closed on January 7, 2011 and yesterday the Commissioner challenged it.
The Commissioner's application alleges that the merger would substantially prevent competition for the disposal of hazardous waste produced largely at oil and gas facilities in northeastern British Columbia.
Significance of the Case
The case is significant for a number of reasons:
- It is the first merger case since 2005, when the Commissioner challenged the proposed joint venture of Saskatchewan Wheat Pool and James Richardson International Limited. That case later resulted in a settlement whereby Saskatchewan Wheat Pool agreed to divest itself of a port terminal grain handling facility and of certain in-country grain elevators, as well as to terminate the joint venture with James Richardson International.
- The application is not only against the merging companies. It is also against the shareholders of the acquired company. This is significant as the Commissioner is seeking to dissolve the merger, which is provided for under the Competition Act.
- The transaction was not subject to pre-merger notification. This fact highlights that the Commissioner can challenge even those transactions which are not subject to advance notice.
- The Commissioner's application also notes that her staff uncovered internal CCS documents which corroborate the challenge. It notes:
"Internal CCS documents reveal that CCS anticipated that it would lose significant revenue, through lower volumes and tipping fees, once Babkirk opened as a Secure Landfill. CCS was also concerned that the loss of revenue could be compounded by a 'price war' with Babkirk."
- The case is a "prevent" case, meaning that the Commissioner is of the view that the merger will prevent future competition. While a number of past merger challenges have included such allegations, most also included an allegation that the merger was likely to "lessen" competition between existing competitors.
In support of the lawsuit, the application notes:
- Complete was poised to enter the relevant market;
- CCS considered Complete's entry as a significant competitive threat, which could lead to lower prices or a price war; and
- the likely substantial prevention of competition would not be remedied by new competitors entering the relevant market with greenfield entry because of the substantial burden involved in obtaining environmental approvals, as well as other barriers to entry
Importance for Merger Planning
The Bureau's decision to challenge the completed merger underscores a number of considerations that parties contemplating a transaction should keep in mind, including the following:
- Regardless of whether a merger triggers a premerger notification requirement under Part IX of the Competition Act, mergers may be challenged by the Bureau for up to one year after their completion. As such, substantive due diligence is critical in mergers between competitors and between suppliers and customers, even in circumstances where formal advance notice need not be given to the Bureau.
- Parties to a merger should be aware of the importance of documents in the Bureau's review of mergers, as a review of the parties' internal documents can affect both the length and outcome of the Bureau's assessment of a transaction.
- The Bureau is receptive to receiving the views of market contacts on mergers, whether those parties are customers, suppliers, competitors or others. While the Bureau is sensitive to strategic complaints, it will follow up on complaints and follow the evidence as appropriate in any given case.
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